PSE&G Executive Calls for Utility Ratemaking Reform as a Means to Stimulate Job Creation in New Jersey and Promote Investment in Critical Energy Infrastructure

COO Ralph LaRossa testifies at Senate hearing that ratemaking needs to be modernized to augment the state’s efforts to address economic downturn and fight global warming

TRENTON, N.J., Dec. 11 /PRNewswire-FirstCall/ — Declaring that businesses must find innovative ways to address the effects of global warming and today’s depressed economy, Ralph LaRossa, president and COO of Public Service Electric and Gas (PSE&G) today called on state legislators to modernize the state’s ratemaking framework to allow utilities to create jobs by making key investments in infrastructure, renewable energy and improved energy efficiency.

“Utilities can make investments that society desperately needs us to make — improving efficiency which will lower bills, developing renewable generation which will help fight global warming, and modernizing our grid which will help maintain system reliability,” LaRossa testified at a hearing held before the state’s Senate Economic Growth and Environment Committees. “These investments can put people to work, help jump start the economy and improve New Jersey’s competitiveness, but we need a new ratemaking framework to do it.”

He asserted that a new ratemaking framework is needed to overcome two major hurdles: the short-term problem of accessing affordable capital in turbulent economic times and the long-term challenge of establishing a regulatory structure that assists utilities in making major investments to help fight global warming and modernize the energy infrastructure.

LaRossa said that in tough economic times, the current ratemaking system pushes utilities to reduce investment. He explained that unless circumstances change, PSE&G will be reducing capital investments — resulting in a reduction of more than 1,000 contractor jobs.

“PSE&G cannot borrow money at a high cost, make an investment, and then wait years to be reimbursed at a rate that will have us losing money,” said LaRossa.

He added that, under the current system, utilities have a financial disincentive to invest in energy efficiency, because utility revenues will decrease (as customer’s bill go down) and rates won’t be adjusted in the near term to make them whole.

“We need a system that does not penalize utilities for making a green investment choice. We need to modernize our ratemaking system to one that is better for utilities, their customers, and the state of New Jersey,” said LaRossa.

He indicated that a preferred way to overcome these problems would be with formula rates, the focus of today’s hearings. Formula rates are used in setting some transmission rates and in some other states for setting electric rates. LaRossa also indicated that PSE&G is open to other ideas that will accomplish the same goals. He emphasized, however, that without changes, the additional investments would not be made.

LaRossa added that PSE&G supports legislative language that reiterates that the prudency of all of its investments will still be scrutinized by regulators and that establishes customer protections, such as performance standards and a reasonable cap on rate increases.

“We need a framework that allows timely and predictable reimbursement for investments. This will allow utilities to access cheaper capital with the savings passed along to ratepayers,” said LaRossa. “We need to be honest with the public. If New Jersey wants utilities to make major investments in energy efficiency, renewable energy and job-creating infrastructure, these investments will be reflected in rates under any system. But with effective investments in energy efficiency, bills can go down even if rates go up.”

Public Service Electric and Gas Company (PSE&G) is New Jersey’s oldest and largest regulated gas and electric delivery utility, serving nearly three-quarters of the state’s population. PSE&G is the winner of the ReliabilityOne Award for superior electric system reliability. PSE&G is a subsidiary of Public Service Enterprise Group Incorporated (PSEG) (NYSE: PEG), a diversified energy company (www.pseg.com).